NEW YORK (AP) — On Monday, the stock market was as choppy as the "fiscal cliff" deal-making that has been yanking it around.

U.S.
stocks struggled for direction on the last day of the year, with the
"fiscal cliff" just hours away and Republicans and Democrats yet to
hammer out a budget deal.

The Dow Jones industrial average opened
lower, with investors disappointed that politicians hadn't reached an
agreement over a weekend of terse, stop-and-go negotiating. With no
clarity on whether a deal would get done, and what it would look like if
it did, the Dow spent the morning flitting between small gains and
losses.

The Dow and the other major stock indexes turned higher at
midday after a few signs that a deal was emerging. The Associated Press
and other media outlets reported that both sides had agreed on a few
key points on taxes and unemployment benefits. President Barack Obama
was scheduled to speak on the issue at 1:30 p.m. EST.

Around 1
p.m. EST, the Dow was up 42 points to 12,979. The Standard & Poor's
500 was up eight to 1,411. The Nasdaq composite index was up 29 to
2,989.

If politicians can't agree on a deal by midnight, then
higher taxes and lower government spending will automatically kick in
Tuesday — the so-called fiscal cliff. That would hurt the economy, many
investors believe. But what might hurt more, they add, is the
psychological impact of knowing that the government that can't agree on a
budget.

"We're having a fragile recovery, with the pain of 2008
still fresh on everybody's mind," said Joe Heider, principal at Rehmann
Group outside Cleveland. "It's fear of the unknown. And fear is one of
the greatest drivers of the financial markets."

It's difficult to
discern how a deal, or lack of a deal, might affect the stock market.
From mid-November through roughly mid-December, the stock market rose
more or less steadily, despite the "fiscal cliff" looming on the
horizon. It wasn't until shortly before Christmas that the "cliff"
finally scared investors enough to send the market down.

Some
investors are unruffled by the approaching "cliff." Even if Republicans
and Democrats can't reach a deal, some investors think the effect of the
higher taxes and lower government spending would be more like the
anti-climactic Y2K scare than a true Armageddon. The impact would be
felt only gradually — for example, workers might get more taxes withheld
from their first couple of paychecks in the new year — but then
Congress could always retroactively repeal those higher taxes, these
investors reason.

Others are more concerned. The higher taxes and
lower government spending could take more than $600 billion out of the
U.S. economy and send it back into recession. Politically, the U.S.
would send a message that its lawmakers can't cooperate. And without a
deal, investors would have no good read on the country's long-term
policy for taxes and spending, or how the government plans to eventually
trim its deficit.

Tim Speiss, partner in charge of the personal
wealth advisers practice at EisnerAmper in New York, followed the
"cliff" negotiations on Monday and wondered if the U.S. would get its
debt rating cut again. The Standard & Poor's ratings agency cut its
rating of the U.S. amid similar negotiations, when lawmakers were
arguing over the government's borrowing limit in August 2011. S&P
said at the time that "America's governance and policymaking (is)
becoming less stable, less effective, and less predictable." Its rating
cut sent the stock market into a tailspin.

The other major ratings
agencies, Moody's and Fitch, have suggested that they might lower their
ratings of the U.S. if the country goes over the "fiscal cliff."

"That is, unfortunately, the big story," Speiss said.

It's
also one of the only stories. There's been little other news to trade
on during the holiday season, giving the "fiscal cliff" drama outsized
influence. No major companies are scheduled to report earnings this
week, and the major economic indicator this week, the government's
monthly jobs report, won't be released until Friday.

Trading
volume has also been light, with many investors still on vacation. That
also makes the market more susceptible to getting yanked around: With
fewer shares trading hands, the market can be moved by relatively small
trades.

Last week, about 2.2 billion shares traded hands each day
on average. Throughout the year, the average has been closer to 3.6
billion.

The yield on the benchmark 10-year Treasury note rose to 1.74 percent from 1.70 percent late Friday.

Some
of the best-performing stocks for the year were those that had been
hammered in 2011. Homebuilder PulteGroup, appliance maker Whirlpool and
Bank of America all more than doubled over the year, after falling by
double-digit percentages in 2011.

Some of the worst performers of
the year were Best Buy, Hewlett-Packard and J.C. Penney. All are
struggling to keep up with competitors who have adapted more quickly to
changing technologies and changing customer tastes. They were all up
Monday, but were each down at least 45 percent for the year.